China Leads Global Property Bond Sales

A Chinese flag flies in front of a construction site in Guangzhou, China. Some developers are issuing bonds to help fund projects.

Bloomberg News

Debt-thirsty Chinese property developers are flocking to the bond market, selling more debt than their North American counterparts combined.

Real-estate companies from the world’s No. 2 economy have issued $7.9 billion worth of bonds so far this year, according to Dealogic data, taking the top spot for a second straight year with 38% of global real-estate bond issuance.

Although the amount is a tad less than the record $8.0 billion sold a year earlier, it exceeds the $7.6 billion sold by U.S. and Canadian property firms so far this year. The U.S. is in the second spot with $5.7 billion, or 27% of total sales.

Companies ranging from major home builder Guangzhou R&F Properties Co. to midsize developer China South City Holdings Ltd. are taking advantage of yield-hungry investors and a low interest-rate environment to raise cash to acquire land or fund construction costs. Some Chinese developers are borrowing to pay down more expensive debt.

“Chinese developers are trying to capture the window of opportunity to lock in low interest rates before rates begin to rise over the longer term,” said Jacphanie Cheung, credit analyst at Deutsche Bank AG.

While U.S. Treasury yields rose last summer because of concerns about an earlier-than-expected dial back of the Federal Reserve’s bond-buying program that would lead to rising interest rates, they are hovering at low levels so far this year. In December, the Federal Reserve laid out a plan to scale back its bond-buying program in measured steps, and the central bank’s chairwoman, Janet Yellen, set the course for steady cuts in her testimony to Congress on Tuesday.

“We do expect more [bond] issuance post earnings season,” Ms. Cheung said. Chinese companies are scheduled to disclose their results from late February to March.
To be sure, China’s roaring start to the year doesn’t mean it will emerge tops when 2014 draws to a close.

Last year, U.S. real-estate companies remained the largest debtors worldwide, accounting for 30% new bonds in the sector, followed by China, which accounted for 26%, according to Dealogic data.